Agricultural volume index numbers and the choice of aggregation formula: an empirical investagation for the member states of the EC

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Boyle, G. E. 'Agricultural volume index numbers and the choice of aggregation formula: an empirical investagation for the member states of the EC'. - Dublin: Journal of the Statistical and Social Inquiry Society of Ireland,Vol. XXV, Pt. IV, 1986/1987, pp41-87

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Abstract:

Analysis of volume index numbers of agricultural outputs and inputs has
occupied agricultural economists and others for generations. In recent years
these indices have become key indicators in the context of the annual policy
reviews associated with the CAP. Despite the centrality of these measures in
the policy formulation process, the methods employed in their compilation are
rarely subject to critique, at least beyond the portals of official statistical
agencies. Yet the computational procedures adopted by the SOEC and the
Member States in the construction of such indices are open to many
theoretical objections. One of the primary criticisms and the subject of this
paper is the theoretical deficiencies in the aggregation formulae used in the
construction of the index numbers. More pertinent, however, in the author's
judgement is the empirical relevance of the theoretical shortcomings. In other
words, do the various possible aggregation procedures produce broadly similar
findings? If the answer is in the affirmative then the cost of employing
theoretically 'soft' methodologies is thereby diminished. For instance, one
might be prepared to abide by a theoretically deficient aggregation formula, in
the context of making inter-country comparisons, if the ranking of countries
were unaffected. If the reverse is true, existing practices may be worse than
useless to the extent that they lead to inappropriate policy decisions. In a policy context therefore, the importance of ascertaining the results of
employing naive aggregation procedures, when more theoretically favoured
approaches are available is manifest.